INSIGHT: China styrene prices swing and defy trend

31 October 2012 17:34  [Source: ICIS news]

By Clive Ong

SINGAPORE (ICIS)--Asia styrene (SM) prices have trended against expectations for most of this year pulled by swings in demand and fluctuating production levels.

Sentiment was generally bullish in the first quarter with market players expecting stable demand for the monomer and relatively good business for the year.

Participants were generally expecting prices to climb in the second quarter as Chinese factories usually kick into higher production from April. But prices slumped instead as the flare up of the eurozone debt crisis in May caused global markets to sell off.

With US economic growth also slowing down, SM prices came under further downward pressure in the second quarter. Spot prices into China declined to $1,240/tonne CFR (cost and freight) China in mid-June, from $1,515/tonne CFR China in mid April. The unexpected downdraft in prices saw several large trading firms in China come under financial duress with one major outfit ruined.

The economic weakness in the US and Europe dampened demand for Asian finished goods. Consequently, the Chinese exports sector took a hit with consumption of resins falling in tandem. As a result, demand for SM also slackened.

When the third-quarter manufacturing peak arrived, the Asian economies, including China, were also faltering. The manufacturing season did not see any significant improvement in demand for resins and SM. The operating rate of styrenics facilities in China were at 55-65%, lower than the usual 70-80% during the manufacturing peak each year. 

Given the poor performance in the styrenic resins sector, SM producers have lowered operating rates in the third quarter with several Japanese plants running at 80-90%. Traders speculated that SM prices would fall sharply in the fourth quarter and a number of them shorted the October and November markets.

Traditionally, the styrenics and SM market enter a quieter period from early October as production of finished goods for exports largely has been completed by then.

Yet, once again this year, the price trend bucked players’ expectations and caught many by surprise when market players returned from the Chinese National Day holidays in early October.

Prices started to accelerate higher from $1,493/tonne CFR China in mid September when the European Central Bank (ECB) and the US Federal Reserve announced another round of sovereign bond buying to bolster their economies. The announcements boosted sentiment and lifted global markets at a time of low output due to weak demand.

The lack of any US-Asia arbitrage for most part of the year further curbed availability in the Asia. And as a result, the price decline in the fourth quarter anticipated by many market players did not materialise. 

Shore tank inventories of SM in east China touched 35,900 tonnes in late September, down from this year’s high of 151,000 tonnes in early February. The typical stock level is around 50,000-60,000 tonnes.

The sharp draw down in inventories from September fanned fears among traders who had short positions. A flurry of attempts to cover their positions for prices of limited October parcels led to an upward price surge.

Bids for October cargoes jumped to $1,700/tonne CFR China, more than $100/tonne higher than November cargoes. Soon, bids rose to $1,800/tonne CFR China during the week ended 19 October as the shorts were squeezed.

When October business ended, market players again found that November lots were also limited. Consequently, another bidding war was underway with November prices moving from $1,540/tonne CFR China to above $1,600/tonne CFR China in late October.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Clive Ong
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